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Sep 5, 2016 | 01:42

More euro zone weakness as engine slows

Euro zone business growth was at its weakest since the start of last year in August, suggesting the bloc's already struggling economy is losing what little momentum it had. As Sonia Legg reports, even Germany services growth slowed more than expected in August suggesting Europe's biggest economy may be losing steam.

TRANSCRIPT +

The headlines focussed on political defeat suffered by Angela Merkel
But there was an economic reversal of fortunes in Germany too.
Service sector growth slowed in August, dropping two points to its lowest level in more than three years.
(SOUNDBITE) (English) CHIEF INVESTMENT OFFICER, CCLA INVESTMENT MANAGEMENT, JAMES BEVAN, SAYING:
"The German economy is running out of momentum in part because they have a very high savings ratio and have been heavily dependent on exports. With the global economy relatively weak Germany's export miracle is not longer able to drive the economy at the pace they would like."
Business growth across the euro zone in August was also at its weakest since the start of last year.
Firms offering deep discounts despite rising input costs and a backdrop of ultra-loose monetary policy.
(SOUNDBITE) (English) CHIEF INVESTMENT OFFICER, CCLA INVESTMENT MANAGEMENT, JAMES BEVAN, SAYING:
"The euro zone remains mired in the context of a weak global economy, with very weak inter-country linkages which means that we still have the periphery wanting lose accommodative policy and extra stimulation, with Germany preferring fiscal rectitude and hard monetary controls."
There's been minimum impact from the Brexit vote so far, but that's not the only potential banana skin ahead.
(SOUNDBITE) (English) CHIEF INVESTMENT OFFICER, CCLA INVESTMENT MANAGEMENT, JAMES BEVAN, SAYING:
"I see both the French and the Italian economies as structurally weak, both in need of reform. I worry that Mr Renzi will lose his vote in November and against that backdrop will have to resign and that could lead to another existential crisis for the euro."
Germany's Chancellor's may be more worried about her future.
But economists say there's no panic at the ECB - they expect the central bank to keep policy unchanged when it meets on Thursday.

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